QSuper, Sunsuper to Form $155 Billion Australian Superannuation Fund

Australian superannuation funds QSuper and Sunsuper will join together this fall to create a $155 billion global investor, one of the most “significant” mergers of its kind, the two firms said this week.

QSuper Chair Don Luke and Sunsuper CEO Bernard Reilly have been named chair and chief executive at the combined fund, respectively, the two plans said this week. A board of 13 trustees will be formed from the boards of the two superannuation funds.

Both headquartered in Brisbane, Queensland, the two superannuation funds have been exploring a merger for more than a year to “benefit from economies of scale in super and thoughtful partnerships.”

In 2019, preliminary discussions started with QSuper’s prior board chairman Karl Morris. Last March, the two funds signed a memorandum of understanding to start the due diligence process over the bulk of a year marred by a pandemic.

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The resulting organization will have roughly 2 million members, as well as more leverage to pull for lower fees, the plans said.

QSuper has roughly 600,000 members and $91 billion in assets under management (AUM); Sunsuper has 1.4 million members and about $61.2 billion in its portfolio.

Members of the two funds can expect no changes to be made to their accounts, products, or services, the plans said.

Similarly, non-senior staff members at both organizations can expect employment security for at least two years, QSuper and Sunsuper pledged.

Sunsuper’s Reilly, who has been the chief executive of the fund since 2019, was most recently a board investment committee member at the NSW Treasury Corporation. Prior to that, he spent 25 years with State Street Global Advisors (SSGA).

The merger is still subject to approval from trustees at both funds, as well as legislative and regulatory approvals.

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Tags: Australia, Bernard Reilly, Don Luke, Funding, Mergers and Acquisitions, QSuper, Sunsuper, Superannuation Fund

Ray Dalio

To Ray Dalio, buying bonds is “stupid.” The bond market worldwide is in a “bubble,” he declares. And fixed income pays too little to bother with, in his view.

A world awash in debt is headed for big problems, the head of hedge fund powerhouse Bridgewater Associates wrote in a LinkedIn essay. “As the amounts outstanding grow, the risks also grow,” he contended.

And given Washington’s big countercyclical spending, with President Joe Biden’s $1.9 trillion aid package the latest addition, the vast ocean of global debt will only get larger and more unmanageable, Dalio said. This is a stance that is taking hold in some corners of the financial realm.

The over-supply of debt around today, he complained, is not a safe thing for investors. “The world is a) substantially overweighted in bonds (and other financial assets, especially US bonds),” Dalio wrote, “at the same time that b) governments (especially the US) are producing enormous amounts more debt.”

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Plus, he argued, inflation is steadily eroding bonds’ value, even though its rise is still muted. For investors, buying bonds in most major nations today, he admonished, “will be guaranteed to have a lot less buying power in the future.”

For Dalio, bond prices (which increase as yields drop) likely are close to their upper limits. A brutal selloff of the world’s enormous bond holdings—$75 trillion from the US alone—would really mess things up, he warned, entailing a vicious circle: “If bond prices fall significantly, that will produce significant losses for holders of them, which could encourage more selling.”

At the moment, he wrote, “Bond markets offer ridiculously low yields.” To be sure, the bond market doesn’t give investors much to get excited about. The Bloomberg Barclays US Aggregate bond index, or Agg, has lost 3.25% this year.

The 10-year Treasury has climbed to a (recent) perch of 1.62%, which is low by historical standards. China’s equivalent is a relatively lofty 3.3%. So investors are gradually shifting to Chinese bonds, Dalio said.

In the US, you always can buy junk bonds, which now yield an average 4.4%, not bad but not great—and they have higher default risk than other paper. In Europe and Japan, yields are negative.

Not everyone agrees with Dalio’s dour outlook for fixed income. Take Jeffrey Gundlach, head of DoubleLine Capital and a towering figure in the bond world. In a recent webcast, he said their yields will move up over time, but that time has not come. Ongoing Federal Reserve bond buying and possible attempts to head off hikes on the long end, called yield curve control, are powerful forces that could thwart any huge bond selloff.

Indeed, while some inflationary signs are around, as the economy opens up and expands again, an up-trend for yields seems logical. Nonetheless, deflationary forces such as technology and globalization remain strong.

Dalio’s prescription for investors is to have a diversified portfolio, with a lot in non-dollar assets (he also is a dollar bear) and focused on equities (hey, he’s a stock guy, primarily).